Social Security is the cornerstone of retirement savings for 20% of Americans, thus the cost of living adjustment determined yearly by the Social Security Administration has an impact on retirees.
Last week’s announcement of the 2021 COLA of 1.3%, followed by an emergency bill by Reps. Peter DeFazio, D-Ore., and John Larson, D-Conn., that would push the increase to 3%, put the COLA debate front and center, especially with an impending election.
It also highlighted the pandemic issues for the elderly. Eight in 10 people killed by COVID-19 are 65 and older.
The COLA is calculated using the CPI-W, a consumer price index reflecting increases for urban wage earners and clerical workers that is based on a fixed market basket of goods and services. COLAs have surpassed 2% only twice since 2010.
The problem with the measurement, according to Social Security advocacy groups, is it doesn’t reflect reality for seniors, who spend twice as much on health care as the average population, according to the National Committee to Preserve Social Security and Medicare. Those 75 and older spend three times as much.
The CPI-E (E for elderly) uses the same formulas and prices as the CPI-W but puts more weight on expenditures typical of those 62 and older. COLAs using this index would be 0.2 percentage points higher on average, the Social Security Office of Chief Actuary reported in 2011.